Buying tax haven passports and properties won't avoid CRS for long

OECD has stated residence-by-investment-schemes will not undermine automatic exchange of information

Only the uninformed, ignorant or misled consider buying a passport and property in a tax haven or territorial tax jurisiction is a reliable solution to avoid the Common Reporting Standard

OECD has stated categorically it will close residence-by-investment schemes such as buying tax haven passports

One of the top CRS loopholes is residency-by-investment schemes. this is mostly buying a passport and property in a tax haven. The investor then self certifies his tax resiency is the tax haven and supports this with his address of his property, even if he doesn't actually reside in the tax haven long enough if at all to be a tax resident.

The OECD will close this loophole shortly by deeming the previous jurisdictions the investor lived in as the current dual residences. It will be up to the investor to prove he no longer lives in previous residencies by means of tax clearance certificates, or equal documentation.

1. OECD says it will shortly close the CRS loophole of residence-by investment schemes

FT - Dec 2016 Pascal Saint-Amans, the top tax official at the OECD, says the residence-by-investment schemes offered by governments such as Malta, Cyprus and some in the Caribbean will not undermine the transparency drive. We are working on this. It will not survive long.
2. OECD vows to make Cypriot residence-by-investment scheme less attractive

The Organisation of Economic Cooperation and Development expects that the residence-by-investment schemes applied by Cyprus, Malta, and Caribbean countries will not undermine a global effort to clamp down on tax dodgers, the Financial Times reported on Wednesday, citing an OECD official.The implementation of the OECD’s Common Reporting Standard, agreed in 2014, which provides for the automatic exchange of information between jurisdictions obtained from financial institutions, and the US Foreign Account Tax Compliance Act, widely known as FATCA and introduced in 2010, is likely to force a mass migration of funds held in offshore accounts, estimated at €10tn, in search for safer havens amid shrinking options, the FT reported.

Citing Philip Marcovici, a Liechtenstein-based lawyer, the FT reported that it will become difficult for wealthy taxpayers to fake a relocation in order to pay less taxes.
3. missing TJN Logo Faking residency: OECD’s Common Reporting Standard leaves the door wide open for fraud

So what should be done? At the very least, the CRS should impose extra due diligence requirements to determine true residence whenever an account holder declares residence in a country that offers residency or citizenship in exchange for money.

Other indicators which should trigger extra due diligence should include:
  • The residence does not match the country of birth or nationality, or
  • The account holder does not speak the language where she/he claims to be resident (this would not be at all odd for cosmopolitan cities, if say a person only speaks Spanish but lives in Miami or only speaks English and lives in Berlin. However, it should ring some alarm bells if a person declares to have lived in Cayman the past 10 years but speaks only Russian or Chinese. In any case, this should constitute a trigger to seek more information, allowing the account holder to explain their situation).
If any of these indicators are met, the declared residency should not be automatically rejected, but additional information should be requested in order to make a determination, including:
  1. A list of past residence in the previous 5 or 10 years
  2. Proof of residency in the declared country, including passport stamps showing how long the person stayed in that country, local bank accounts, school where children study, gym membership, social security payments or any other proof that a person who actually lives in a country should easily be able to produce.
4. Tax Justice Network Fake residency: the yawning loophole the OECD must close.

One of the biggest of these loopholes, perhaps — after Loophole USA — is the problem of ‘fake residency’, where countries allow wealthy people from elsewhere to “buy” their way into being residents of that jurisdiction, perhaps in exchange for their investing a certain amount there, or paying a flat fee. How does this enable people to escape the CRS? Very simply: the CRS collects information about the beneficial owners of assets, then transmits that information to the owner’s place of residence. If the residence is fake, then the CRS system will require relevant agencies to collect and transmit the relevant beneficial ownership information to Dominica, say, and Dominica will ignore it, and not tax it either. End of story. The information trail goes cold. Banks, which are a core part of the CRS project, willingly collude in this monkey business.

Following the recent decision of St Lucia to dive in, there are now five such places in the Caribbean alone, including St. Kitts and Nevis, Antigua and Barbuda, Grenada and Dominica. Well, in fact, the race already appears to be scraping the bottom. And it’s that fast-growing purveyor of offshore sleaze, Dubai.

In short, you can obtain residence visas through three main avenues.
  1. buy real estate in one of the United Arab Emirates, worth over a million Dirhams.
  2. get an employment contract there
  3. “Incorporation of your own company in the United Arab Emirates. This is the most convenient and efficient option for obtaining business visas in the UAE. It takes only a few weeks to obtain visa and the expenses incurred are relatively low. Moreover, it is not necessary for a company to perform real activity – its business may be purely formal.

    ...within a few days you are issued a certificate of incorporation of onshore company. Thereupon you and your family members receive residence permit in the UAE.”

    For a couple of thousand dollars, and a couple of visits to Dubai each year, you’re off the hook. We hear that this is a very busy business for Dubai. If the OECD doesn’t tackle this one, quickly, then they will all start doing it.

    How could this be closed down? Well, quite simply by putting together a blacklist of such jurisdictions: if a beneficial owner is resident in one of these places, then their previous (non-blacklist) place of residency must be registered.
5. Pascal Saint-Amans on St. Kitts / Nevis citizenship by investment scheme
See around 23m00

...for a few thousand hundred thousand dollars anyone can get residency in Nevis to avoid paying tax."